1. 1. Balance the budget 2. Establish short-term emergency fund 3. Pay off consumer debt 4. Establish long-term emergency fund 5. Develop “large purchase” savings plan 6. Pay off mortgage 7. Save for retirement 8. Save for college 9. Invest the surplus 10. Share the surplus 1 © 2012 Matthew S. Whiting Wk 5

2. Determine what you will need Understand the primary income sources Start early! Invest consistently Don’t borrow against your retirement 2 © 2012 Matthew S. Whiting Wk 5

3. There are many rules of thumb There are many online calculators Assumptions are key: Live in same area or move? Debt-free by retirement? Retirement lifestyle – same or different? Lifespan expectation? 3 © 2012 Matthew S. Whiting Wk 5

4. Low end, 60 – 70% of pre-retirement income Live in paid-off home No consumer debt Same or more conservative life-style Poor health, family history of short life-span High end, 100%+ of pre-retirement income Mortgage on home Consumer debt More travel or other life-style change Excellent health, Methuselah-like family history 4 © 2012 Matthew S. Whiting Wk 5

5. Social Security … maybe! Likely to be higher retirement age/lower benefits Statement available http://www.ssa.gov/mystatement/http://www.ssa.gov/mystatement/ Pension … more rare in private sector Many companies have phased out Replaced with 401k or similar plans Most companies have online benefit projection calculators Individual retirement accounts Employer sponsored - 401k, 403b, 457b, many others IRA, Roth IRA Life insurance, annuities, many, many others Part-time work 5 © 2012 Matthew S. Whiting Wk 5

6. Employer sponsored - 401k, 403b, 457b, many others http://www.tiaa-cref.org/plansponsors/resources/retirement- plans/comparison/index.html http://www.tiaa-cref.org/plansponsors/resources/retirement- plans/comparison/index.html http://www.raymondjames.com/personal_investing/solutions_s mall_business_qualified_retirement_plans.htm http://www.raymondjames.com/personal_investing/solutions_s mall_business_qualified_retirement_plans.htm IRA, Roth IRA https://www.fidelity.com/ira/ira-comparison Life insurance, annuities, many, many others Key differences Employer match Tax treatment (pay me now or pay me later) Portability (employer sponsored vs. individual account) 6 © 2012 Matthew S. Whiting Wk 5

7. Patty Starts investing $2,000/year at age 26 Stops investing after 10 years (age 35) Assuming 6% interest rate, at age 65:  Total invested is $20,000  Total account is $160,492  Earnings are 7 times amount invested Susan Starts investing $2,000/year at age 36 Stops investing after 30 years (age 65) Assuming 6% interest rate, at age 65:  Total invested is $60,000  Total account is $167,603  Earnings are 1.8 times amount invested 10 year delay requires nearly 30 years to catch up! 7 © 2012 Matthew S. Whiting Wk 5

8. Investing consistently over a long period of time will result in substantial earnings It is best to automate this through payroll deductions if possible Each year missed results in loss of not only the investment, but all the subsequent earnings on that investment 8 © 2012 Matthew S. Whiting Wk 5

9. Some retirement plans, such as 401k, allow loans to be taken from the plan This is generally a bad idea The earnings on those funds are lost, though partially offset by interest paid on loan Some loans require suspension of contributions Many loans have a clause that requires them to be repaid quickly (90 days or less) upon a job change! Retirement funds should be used only for that – which is another reason to have the emergency funds mentioned earlier. 9 © 2012 Matthew S. Whiting Wk 5

10. Having a good retirement nest egg provides a lot of flexibility as we age This opens up several opportunities: Allows time to serve your church more Allows time to travel and visit family and friends Allows opportunity to serve on a mission field 10 © 2012 Matthew S. Whiting Wk 5

11. 1. Balance the budget 2. Establish short-term emergency fund 3. Pay off consumer debt 4. Establish long-term emergency fund 5. Develop “large purchase” savings plan 6. Pay off mortgage 7. Save for retirement 8. Save for college 9. Invest the surplus 10. Share the surplus 11 © 2012 Matthew S. Whiting Wk 5

12. The cost of higher education is increasing faster than inflation, about twice as fast. It is almost impossible to save enough to pay for college or trade school, but anything is better than nothing! Probably the best savings plan for college is to be debt-free and living well within your means prior to needing to pay for college – This is counter to most secular advice. 12 © 2012 Matthew S. Whiting Wk 5

13. 529 Plans Coverdell Education Savings Accounts Custodial Accounts 13 © 2012 Matthew S. Whiting Wk 5

14. Plans and details vary state-by-state Anyone can contribute to a 529 and there are no income limits for donors Donor may pay state tax on contributions, but earnings and withdrawals are tax-free Anyone can be a beneficiary The funds must be used only for higher education expenses, unless willing to pay taxes and penalty fees (10% is typical) The account owner retains control of the funds 14 © 2012 Matthew S. Whiting Wk 5

15. Formerly called Education IRAs Certain provisions end in December 2012 Contributions limited to $2,000/year per beneficiary ($500 after 2012) Donor pays tax on contributions, but earnings and withdrawals are tax-free Income limits apply to donors Singles phase out between $95K and $110K Married couples between $190K and $210K Funds can be used for K-12 (until end of 2012) as well as higher education 15 © 2012 Matthew S. Whiting Wk 5

16. UGMA and UTMA State level programs – every state has UGMA and all but two states have UTMA Money is a gift to the minor and no longer owned by the donor Only one custodian and one minor per account – account is controlled by custodian until minor reaches age of termination (varies by state) Main tax advantage is for the minor as income is either excluded or taxed a low rate – although the “kiddie tax” provision now affects earnings that exceed $1,700. 16 © 2012 Matthew S. Whiting Wk 5

17. Having some college savings provides several advantages: Allows your child(ren) to attend a college, Bible school or trade school Allows your child(ren) to be in less debt after completing their schooling Requires less money from current income for paying college expenses 17 © 2012 Matthew S. Whiting Wk 4

18. 18 Wk 5 © 2012 Matthew S. Whiting Balanced the budget Established a short-term emergency fund Pay off consumer debt Establish long-term emergency fund Create large purchase savings plan Pay off mortgage Save for retirement Save for college

19. Questions? © 2012 Matthew S. Whiting 19 Wk 5